Monetarism does not act directly on the wage-price spiral. ​ It acts only by controlling business borrowing for investment. ​ This is often poorly understood. ​ It is not unknown for conservatives to simultaneously call for a rising rate of business investment (and tax incentives to achieve this) alongside tight monetary policy to control inflation. ​ The combination of the two policies is absurd. ​ The myth seems to persist that monetary policy somehow acts directly on prices, the wage price spiral, without touching the volume of producer borrowing, investment and spending.

Monetarism does not act directly on the wage-price spiral. ​ It acts only by controlling business borrowing for investment. ​ This is often poorly understood. ​ It is not unknown for conservatives to simultaneously call for a rising rate of business investment (and tax incentives to achieve this) alongside tight monetary policy to control inflation. ​ The combination of the two policies is absurd. ​ The myth seems to persist that monetary policy somehow acts directly on prices, the wage price spiral, without touching the volume of producer borrowing, investment and spending.

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Monetary policy has a differential impact on different types of business. ​ The circumstances under which monetary control is attempted are those of strong consumer demand. ​ Under such conditions, firms in oligopolistic markets tend to have unliquidated gains. ​ This enables them to pass on the increased cost of borrowing, and this will be especially easy when new borrowing is undertaken for the supposedly laudable goal of investment. ​ Unions and the public understand and accept this motivation for price increases without concomitant wage increases. ​ These firms' capacity to pass on increase ​costs also make them a safe bet for banks choosing to ration credit (as normally happens under tight monetary conditions). ​ In contrast, those in competitive markets cannot raise prices to meet these costs. ​ They are less likely to secure rationed credit. ​ They cannot resort to bond issues to circumvent rationing. ​ Monetary policy acts primarily on small firms and, for this reason, tends to find approval in larger firms. ​ Severe monetary policy tends therefore to be forcefully resisted by small businesses and farmers.

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Monetary policy has a differential impact on different types of business. ​ The circumstances under which monetary control is attempted are those of strong consumer demand. ​ Under such conditions, firms in oligopolistic markets tend to have unliquidated gains. ​ This enables them to pass on the increased cost of borrowing, and this will be especially easy when new borrowing is undertaken for the supposedly laudable goal of investment. ​ Unions and the public understand and accept this motivation for price increases without concomitant wage increases. ​ These firms' capacity to pass on increased ​costs also make them a safe bet for banks choosing to ration credit (as normally happens under tight monetary conditions). ​ In contrast, those in competitive markets cannot raise prices to meet these costs. ​ They are less likely to secure rationed credit. ​ They cannot resort to bond issues to circumvent rationing. ​ Monetary policy acts primarily on small firms and, for this reason, tends to find approval in larger firms. ​ Severe monetary policy tends therefore to be forcefully resisted by small businesses and farmers.

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There is also a potential risk involved. ​ Investment spending is traditionally the most volatile of all demand in the economy. ​ As discussed, monetary policy may well need to be severe in order to begin to bind, and actually become effective in reducing inflation. ​ The effects ​on an extreme contraction in the money supply on a notably volatile section of demand are unavoidably unpredictable. ​ The economy cannot be '​fine-tuned'​ in this way. Monetary contraction may be completely ineffective up to a point, and then disastrously over-effective. ​ There is no way of knowing.

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There is also a potential risk involved. ​ Investment spending is traditionally the most volatile of all demand in the economy. ​ As discussed, monetary policy may well need to be severe in order to begin to bind, and actually become effective in reducing inflation. ​ The effects ​of an extreme contraction in the money supply on a notably volatile section of demand are unavoidably unpredictable. ​ The economy cannot be '​fine-tuned'​ in this way. Monetary contraction may be completely ineffective up to a point, and then disastrously over-effective. ​ There is no way of knowing.

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Monetarism is not an effective tool. It is blunt, unreliable, discriminatory and dangerous. ​ These lessons have recently been relearned (1968-69) as monetary policy has attempted ​to constrain inflation resulting from Vietnam spending.

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Monetarism is not an effective tool. It is blunt, unreliable, discriminatory and dangerous. ​ These lessons have recently been relearned (1968--69) as monetary policy has been used to attempt ​to constrain inflation resulting from Vietnam spending.

====== Production versus Price Stability ======

====== Production versus Price Stability ======

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In the US, public expenditure tends to hover at the lower end of that tolerable by the community. ​ There is little or no room for it to be cut (whilst it is often inefficiently administered,​ cutting budgets is a terrible way of reducing inefficiency:​ "it is far easier to cut function than waste"​). ​ Significant cuts in public spending are politically very difficult.

In the US, public expenditure tends to hover at the lower end of that tolerable by the community. ​ There is little or no room for it to be cut (whilst it is often inefficiently administered,​ cutting budgets is a terrible way of reducing inefficiency:​ "it is far easier to cut function than waste"​). ​ Significant cuts in public spending are politically very difficult.

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Tax increases in the midst of inflation, which themselves directly increase prices and business costs, appear rather obtuse to the layman. ​ More importantly,​ the suggestion of tax increases ​seem to threaten the tacit agreement that the issue of economic redistribution be ignored. ​ When tax increases are proposed, liberals feel a knee-jerk responsibility to call for them to be progressive and conservatives feel a knee-jerk suspicion that the real goal is to expropriate their wealth for the benefit of others. ​ Finally, there is the ubiquitous conflict with production and employment --- whilst some monetarists hope to argue that monetarism can control inflation through some unseen mechanism that does not reduce production, that claim is never made of fiscal control.

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Tax increases in the midst of inflation, which themselves directly increase prices and business costs, appear rather obtuse to the layman. ​ More importantly,​ the suggestion of tax increases ​seems to threaten the tacit agreement that the issue of economic redistribution be ignored. ​ When tax increases are proposed, liberals feel a knee-jerk responsibility to call for them to be progressive and conservatives feel a knee-jerk suspicion that the real goal is to expropriate their wealth for the benefit of others. ​ Finally, there is the ubiquitous conflict with production and employment --- whilst some monetarists hope to argue that monetarism can control inflation through some unseen mechanism that does not reduce production, that claim is never made of fiscal control.

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The final possibility is to combine wage and price controls with a background fiscal policy. ​ Price controls need only be effective in oligopolistic markets, in which they are much easier to implement anyway --- in competitive markets there is no union or corporate power to fuel the wage-price-profit spiral. ​ But such controls would be in stark contrast to all conventional wisdom. ​ By controlling prices, the allocative efficiency of the market is impaired --- prices cannot adjust to changing circumstances to redistribute resources. ​ During wartime such allocative efficiency was swamped by far greater increases in output ​along far more effective ​dimensions ​than improved allocation --- those typically receiving less attention from economists.

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The final possibility is to combine wage and price controls with a background fiscal policy. ​ Price controls need only be effective in oligopolistic markets, in which they are much easier to implement anyway --- in competitive markets there is no union or corporate power to fuel the wage-price-profit spiral. ​ But such controls would be in stark contrast to all conventional wisdom. ​ By controlling prices, the allocative efficiency of the market is impaired --- prices cannot adjust to changing circumstances to redistribute resources. ​ During wartime such allocative efficiency was swamped by much greater increases in output ​by far more effective ​means than improved allocation --- those typically receiving less attention from economists.

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Modern expectations that the economy will be held very near full employment have opened the way for persistent inflation. ​ The conservative (monetarist) response is ineffectual,​ discriminatory and potentially dangerous. ​ The liberal (fiscal) response is so at odds with the goals of high output and employment that it is politically ​unfeasible. The only remaining alternative (price controls) labours under a large ideological cloud. ​ The way is open for recurrent inflation, which itself has a discriminatory impact on different groups, and exacerbates the other unsolved problem of the affluent society.

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Modern expectations that the economy will be held very near full employment have opened the way for persistent inflation. ​ The conservative (monetarist) response is ineffectual,​ discriminatory and potentially dangerous. ​ The liberal (fiscal) response is so at odds with the goals of high output and employment that it is not politically ​feasible. The only remaining alternative (price controls) labours under a large ideological cloud. ​ The way is open for recurrent inflation, which itself has a discriminatory impact on different groups, and exacerbates the other unsolved problem of the affluent society.

====== The Theory of Social Balance ======

====== The Theory of Social Balance ======

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In American society, production is seen as the primary social goal. This is due to the continuing thrall of anachronistic ideas, vested interests in production, the obscurantism of the theory of consumer needs, a mistaken conception of the national security and an unfortunate association under present conditions between production and security for many millions of workers.

In American society, production is seen as the primary social goal. This is due to the continuing thrall of anachronistic ideas, vested interests in production, the obscurantism of the theory of consumer needs, a mistaken conception of the national security and an unfortunate association under present conditions between production and security for many millions of workers.

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A society must survive before it may begin to consider the pursuit of happiness its primary goal. But production is no longer a means to survival, either as it traditionally was, or in its modern reformulation as a war or productive capacity with the Soviet Union. ​ But military production plays an essential role within American society. ​ Many valuable technologies have been developed under military auspices.

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A society must survive before it may begin to consider the pursuit of happiness its primary goal. But production is no longer a means to survival, either as it traditionally was, or in its modern reformulation as a war of productive capacity with the Soviet Union. ​ But military production plays an essential role within American society. ​ Many valuable technologies have been developed under military auspices.

> This has done more to save us from the partial technological stagnation that is inherent in a consumer goods economy than we imagine. ​ But this is a hideously inefficient way of subsidising general scientific and technical development as nearly all scientists agree. ---page 283

> This has done more to save us from the partial technological stagnation that is inherent in a consumer goods economy than we imagine. ​ But this is a hideously inefficient way of subsidising general scientific and technical development as nearly all scientists agree. ---page 283